Setting the record straight on the North Carolina level playing field bill

Op-ed. The North Carolina Cable and Telecommunications Association responds to …

Op-ed. The North Carolina Cable and Telecommunications Association responds to a Free Press "hatchet job" and argues that cities rolling out their own broadband, phone, and cable networks often provide unfair competition to private investors.

North Carolina's "level playing field" telecommunications bill has been passed by the state legislature and is waiting on the governor's signature; it will make it more difficult for cities to offer phone, cable, and broadband service. Earlier this week, Free Press wrote an op-ed that opposed the bill; now, the North Carolina Cable and Telecommunications Association fires back at Free Press with a full-throated defense. The opinions expressed here do not necessarily represent those of Ars Technica.

OK. I get it. Business is bad. Broadband is good. Government supplied service in competition with private enterprise is even better! At least that’s the premise of Free Press’s hatchet job on North Carolina’s Level Playing Field / Local Government Competition Bill (“North Carolina’s broadband bill would eliminate level playing field”).

It’s always a shame when the facts get in the way of a good narrative—but here are some facts which you won’t hear from the broadband “advocates.”

First, the bill’s not just about broadband. It’s about government competing in a variety of businesses—cable TV, telephone, Internet access—anything that can be offered by a business over a wire.

Second, and more importantly, North Carolina’s bill does not “prohibit” cities from competing against private providers—it only sets ground rules if they do. This is necessary because there are no rules currently. This means that cities have been free to discriminate against private business, they have been free to cross-subsidize competition with monopoly utility revenues, they have been free to incur debt without taxpayer approval, and they have been free to subsidize their competition through tax exemptions not available to private industry.

Has any of this actually happened in North Carolina? You bet.

Unfair competition

The City of Wilson decided to go into competition with incumbent private providers who had fully built-out, upgraded networks in place throughout the city. It did so by borrowing money without taxpayer approval, and it has kept its money-losing network afloat by shifting money from its electric and gas utility funds. The kicker—Wilson’s gas and electric utilities have some of the highest utility rates in the state. In other words, Wilson is taking money from captive monopoly ratepayers, many of whom are struggling just to keep the lights on, in order to prop up a competitive, discretionary service. All of this to provide cable TV, telephone, and broadband services that were already being provided by private industry.

The Towns of Mooresville and Davidson took on $90 million in debt without taxpayer approval to purchase cable assets out of bankruptcy and offer services that private industry was ready, willing, and able to provide. The result—these cities are losing money hand-over-fist, they’ve had to impose new taxes in order to support their network, and their citizens are understandably outraged that their leaders have gotten them into this mess in the first place. They’ve voted those leaders out of office, but they’re stuck with a system they didn’t want and debt they didn’t approve.

The latest entry is the City of Salisbury. Once again, the city has decided to go into competition with incumbent private providers that already offer services throughout the city. Although Salisbury’s network is in its infancy, it is highly unpopular with the citizens of Rowan County who had no say in their leaders’ decision to incur this risky debt. The cherry on top—Salisbury pledged municipal assets, including city hall and multiple fire stations, to secure its debt obligation.

Even the most hardened advocate would have to concede that what these cities have done raises difficult and troubling public policy questions.

Should cities be excused from paying taxes that private businesses pay?

Can a city be permitted to compete on the backs of captive ratepayers?

Can a city force a new business to take its broadband service in exchange for issuance of a building permit?

Can a city impose new right-of-way fees as a way to fund its competitive efforts?

Is it a proper role for city officials to be publicly promoting city services over those provided by private companies, especially considering these companies, as some of the largest taxpayers, help pay the mayor’s salary?

Should a city be permitted to pledge city hall and its fire stations as security for loans that facilitate a city’s desire to enter a crowded competitive field in a rapidly-changing technology-based business sector?

These are the issues addressed by North Carolina’s level playing field bill. These same issues are addressed by numerous other states.

The unserved

But what about service to unserved areas? It certainly is a convenient rallying cry that North Carolina’s bill will somehow impair the provision service to the unserved, but the bill actually only applies where a city chooses to offer a service already being provided by private business. It doesn’t apply to areas that are unserved. (Yes, the bill actually says that.)

Regardless, the notion that cities—with their limited geographical scope and fixed constituencies—are somehow the answer to this issue is puzzling. Certainly none of the cities in North Carolina have provided broadband to people that didn’t already have it.

Clearly there are some areas in North Carolina, like every state, that do not have adequate broadband service because there is not a business case for providing service in those areas. As the North Carolina General Assembly has taken the important step of clarifying the circumstances under which cities can enter the market to provide a service already being provided, hopefully the General Assembly, private industry, and public officials can now have a discussion about working together to extend service to areas that don’t have it.

Marcus Trathen serves as counsel to the North Carolina Cable and Telecommunications Association.